Property Investor Guide

At Cullen Property we specialise in sourcing properties for our investor clients. Finding the right place to invest for you takes time and knowledge. We believe that Edinburgh is uniquely attractive to investors as its’ property market is more accessible compared to London with high rental yields and a consistently strong rental market.

One feature that makes Edinburgh stand out is its growing and relatively well-heeled student population, which has fuelled demand for HMO properties for years.

As long-term Edinburgh property investors ourselves, we strongly believe not only in Edinburgh, but also in taking a professional approach to property investment. In this investor guide we want to share some of our knowledge with you.

Is buy-to-let for you?

Start by considering whether this type of investment is for you. With low interest rates, many other forms of saving are not delivering great returns at the moment. Investing in property creates opportunities to benefit from rental yields, even if property prices are not growing, as well as increased capital values in a rising market.

Having said that, property is a long-term commitment and if you are uncomfortable with investing your money for about 20 years, property may not be for you. To get started, you need capital to use as a deposit. As a general rule, at least 25% of the purchase price should be put down as a deposit to allow access to some of the more competitive mortgage deals.

The perfect location

If you were buying a property to live in, the right location would be top of your priority list. The same applies to an investment property, the only difference being the criteria used to decide what is right. Consider the city: are rental properties sought after? Large student populations and a high number of young professionals are good indicators for a thriving rental sector. The University of Edinburgh is highly sought-after by international students and, as a financial centre within Europe, the city benefits from numerous job opportunities for new graduates as well as more seasoned professionals. Many of those are looking to rent rather than buy a property for a number of years.

At the same time, property prices in the Scottish capital are noticeably lower than in London, making the city much more accessible to property investors.

Having chosen a city, you need to narrow down your search to a specific area. If you are unfamiliar with your city of choice, seek professional help from a local investment specialist. Looking at Edinburgh, areas that are especially sought-after are those close to the respective universities, such as Marchmont, Newington and Bruntsfield, which are also within easy walking distance of the city centre.

Consider local amenities, transport links, availability of parking etc. If you’re unsure about the area and information is not forthcoming, don’t invest.

Your rental market

Who will you be renting to? Student tenants often want to live with their friends and are looking for four, five and six bedroom properties in close proximity to their university. As an investor, these ‘houses of multiple occupancy’ (HMO) are especially interesting as rental yields tend to be higher, properties have definitive prospective tenant groups, and re-sale values often exceed those achieved by smaller houses.

One and two bedroom flats, on the other hand, are popular with young professionals. Many recent graduates are still happy to share a home, whilst families are often keen to rent small houses or mid-sized flats.

Once again, local advice is invaluable when deciding whether a property is a good investment. Whilst you don’t need to be there to ask the questions in person, finding a property manager that knows the area and is on-hand to answer questions is key to a successful investment.

Do the maths

Consider all of the costs involved in becoming a landlord. Apart from the purchase price, there may be refurbishment work required and the property needs to be furnished. More start-up cash is needed to cover the costs involved in fulfilling all of the legal requirements.

A reputable investment manager will be able to list all costs for you as well as assessing a property’s rental potential to help you make a decision on the potential return on investment.

Thinking ahead, once a tenant is in place, there will be a number of safety related items to be checked and certified and repair costs may need to be covered. Between tenancies upgrades may be required, all of which make a reserve fund advisable. Considering all of these you need to ask yourself whether your investment property will make money for you? In the long run, well-placed, traditional properties have done very well in Edinburgh.

Shop around for the right mortgage

Traditionally, buy-to-let mortgages require higher deposits than residential ones, but good deals are available. Over the past 12 months, the number of mortgages for investors has grown steadily and there is a choice of fixed term and tracker products available. Consider using a specialist broker to help select the right mortgage for you.

Your rental income needs to cover the mortgage, plus any management fees and should provide enough for a ‘rainy day’ fund as well as offering you profit. An investment manager may have a number of trusted brokers they can introduce you to.

Cut through the red tape

Property investment and management is among one of the most tightly regulated industries in the UK. Much of this legislation is in place to protect tenants from so-called ‘rogue landlords’.

Cullen Property’s Managing Director Malcolm Warrack is also the chair of LetScotland, a representative body for professional lettings agents in the country. As a company, this allows us to work closely with both the Scottish government and the City of Edinburgh Council to ensure that the property investment and lettings industry becomes more professional and transparent. We strongly believe that we have a role to play in further developing this industry.

Experienced investment managers will ensure that everything is in order before a tenant moves in, including compliance with HMO regulations for larger properties, registration as a landlord with the local council or annual safety certificates for individual properties. They will place deposit payments in one of the approved Tenancy Deposit Schemes and more.

Landlord and tenant related regulation changes regularly and staying on top of new developments can be time consuming. A reliable property manager can give you the peace of mind of knowing that your investment is in good hands.

Hands on or not?

Unless you are living in close proximity to your investment property, self-management may not be practical. Tenants in general expect landlords to react quickly when there are problems with the property. Landlords with HMO properties are required by law to provide 24 hour emergency assistance for their flats. Check that your property managers have a dedicated maintenance team, possibly assisted by a number of trusted contractors to save you the hassle of having to arrange repairs at short notice. Property professionals will prepare inventories detailing all items in the flat – from furniture and fittings, to crockery and cutlery. A thorough check-in will help tenants settle in more quickly and an equally detailed check-out at the end of the tenancy will help spot any problems early.

A hands-on property manager will not only collect the monthly rent on your behalf, but also carry out regular checks on your investment whilst a tenant is in place. This helps spot any problems early and deal with them quickly. You may think that, as a landlord, you are only ever a phone call away, but do consider whether you have the time and resources to deal with tenant requests before deciding on the management of your property investment.

Take your time and use your agent

Rushing into any investment is never a good idea. Take time to do all the research required, ensuring you have all the information you need and don’t be afraid to ask questions. Serious investment managers are happy to meet face-to-face to discuss your individual requirements or, if you’re based further away, choose another means of communication. Ask for case studies that may help illustrate similar investments to the one you are considering and research the company’s track record and client testimonials.

Decide how involved you would like to be: you would never buy a house for yourself without viewing it, but it is perfectly acceptable to invest in property without the same degree of personal involvement. Reputable property managers will be able to handle to whole process for you – from sourcing the property to negotiating a sale, any refurbishment work and letting it out.

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